I've written about Brazil pre-Lula and post-Lula and spent the last five years covering all aspects of the country for Dow Jones, Wall Street Journal and Barron's. Meanwhile, for an undetermined amount of time, and with a little help from my friends, I will be parachuting primarily into Brazil, Russia, India and China. But will also be on the look out for interesting business stories and investing ideas throughout the emerging markets.

'Yats' Wants EU To Nix Russian Pipeline

Ukraine Prime Minister Arseniy “Yats” Yatsenyuk has a future as a U.S. natural gas lobbyist in Washington.

The man made famous by U.S. Assistant Secretary of State Victoria Nuland in February in a leaked conversation with American diplomat Geoffrey Pyatt in Kiev thinks Europe should block Russia’s planned construction of a new gas pipeline. If the new South Stream gas pipeline is built, it will deliver natural gas directly to Russia’s most important customer — Europe — without having to pipe it through that troubling piece of real estate known as Ukraine.

Russia and Ukraine have been locking horns since late 2013, when president Viktor Yanukovych nixed a trade deal with Europe in order to move his country closer to Russia. Protesters in Kiev called for his ouster and he was removed by extra-legal means on Feb. 22. Yatsenyuk immediately took over and the relationship with Russia quickly deteriorated. Yats did as was expected, moving Ukraine closer to the E.U. politically, signing an Association Agreement on March 21 and setting the stage for further economic cooperation. One way Yats would like Europe to cooperate is by stopping Russia from building South Stream, which would make south European deliveries via the Black Sea.

Yats meets with U.S. politicians in Kiev on March 14, 2014. (Photo from U.S. Embassy in Kiev)

Russia’s state owned natural gas producer, Gazprom, launched the pipeline project in 2012 and expects to complete the first line in late 2015. The 15.5-billion-euro project will include four 577 miles of lines ready for Europea-bound natural gas.

Commercial deliveries through this pipeline are expected to begin in the first quarter of 2016, with the pipeline becoming fully operational in 2018, RIA Novosti reported Tuesday.

Russia annually pumps about 100 billion cubic meters of gas to European countries via Ukraine. According to the U.S. Energy Information Agency, 16% of the natural gas consumed in Europe arrived by Russian pipelines in Ukraine. In the past, as much as 80% of Russian natural gas exports to Europe transited Ukraine. This number has fallen to 50%-60% since the Nord Stream pipeline, a direct link between Russia and Germany under the Baltic Sea, came online in 2011, EIA said.

Russia is the second-largest producer of natural gas behind the U.S. and third-largest liquid fuels producer in the world. The U.S. has been trying to convince the E.U. to go with more expensive U.S. LNG, at least as a means to become less dependent on Russia.

As it stands, the U.S. has had problems convincing Europe to tighten the screws on Russia by enforcing tougher sanctions after the March 16 annexation of Ukrainian peninsula Crimea. One of the reasons Europe has been less hands-on in dishing out economic punishment for Russia’s support of separatists movements inside Ukraine is because of its reliance on Russian natural gas.

In May, Russia’s President Vladimir Putin said his country was planning to follow through with South Stream despite Yats’ lobbying against it. Putin also said their North Stream pipeline was also a go, but if Brussels continued to use Ukraine to politically strong arm Moscow, Russia will build the pipeline in countries not yet part of the E.U.

Of course, all of this may be easier said than done.

Natural gas flows through Ukraine vary by season, ranging from almost 12 billion cubic feet per day in the winter to only 6 billion in the summer. An unusually mild winter in 2013 meant reduced natural gas flows through Ukraine and contributed to higher levels of natural gas storage in Europe.

For now, there are two major pipeline systems that carry Russian gas through Ukraine —the Bratstvo (Brotherhood) and Soyuz (Union) pipelines. The Bratstvo pipeline is Russia’s largest pipeline to Europe so far. It crosses from Ukraine to Slovakia and splits in two to supply northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and supplies additional volumes to central and northern Europe. A third major pipeline through Ukraine (Trans-Balkan) delivers Russian natural gas to the Balkan countries and Turkey.

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This is a great opportunity to act in unison to block Russia’s expansionism. In addition, Ukraine could impose high right-of-way taxes on Russia for any gas entering and leaving its borders, including Crimea. Any resources, electrical, water, gas, bound for Crimea should be charged at least double the normal rate. This would force Russia to build expensive electrical plants, and ship water and gas to Crimea.

Russia has been doing everything it can to bend Ukraine to its will. They have been sponsoring and equipping the separatists with weapons and military equipment in order to bite-off a piece of Eastern Ukraine. Russian gas needs to pass through Ukraine to reach other countries. Russia should pay an absorbent premium for any use of Ukraine resources. This, in effect, is the same type of campaign Russia is using against the EU – extortion. Once Russia withdraws all its troops and ceases to sponsor terrorism with Ukraine, a more equitable agreement can be made between the two countries.

Did you read a headline today where Kerry tells Petro that he has to “prove” the Russians are supporting the separatists? I might have stumbled on that in RIA Novosti, though. I didnt read that in a presser or participate in a conference with the State Dept. Did you see that headline today?

I don’t recall reading that (John) Kerry had made that statement. However, as a former member of the military intelligence community, I find it difficult to believe nobody has been able to trace it back to Russia. The equipment and weaponry alone are a dead give-away. If ‘unsponsored’ separatists can obtain advanced weaponry, why can’t a billionaire get his sweet hands on a few? Something doesn’t smell right here. I would be willing to bet the NSA knows what’s going on. I will let you know if I stumble across a story about Kerry and Petro.

Was a RIA Novosti headline: http://en.ria.ru/world/20140605/190366404/Kerry-Demands-Poroshenko-Prove-Russias-Involvement-in-East.html The sanctioned Russians include billionaire oligarchs believed to be providing logistical support or financing, perhaps to buy arms, or to take time out of work to foment civil unrest. As you probably know, Petro, coming from the other side of the fight, did the exact same thing with the Euro Maidan revolt against Viktor Yanukovych. He told the Washington Post in an interview that Ive linked to here in the past that he funded the protests. I dont know how you fund protests; maybe you provide food for those people camping out in the streets. But he also owns a TV station in Ukraine and used it as a propaganda tool, too. So it goes both ways, as always.

Thanks, Kenneth, you have been quite forthcoming and informative, both in your articles and response to your amateur commenters, such as myself. I learned years ago that if you want to improve your game, learn from someone you respect and who is a better player than you are. You have changed my perspective about the crisis in Ukraine. I will try to be more circumspect. I look forward to more of your insightful articles.

I dont know how good I am on Ukraine, really. I just read a lot. Most of the stuff Im doing on Ukraine is a compilation of other news sources, unless its got an investment banking angle, then that’s all my sources. Im not on the ground in Ukraine, so that is missing from my reporting. I can only do so much. And I only cover it because of Russia. Ive been to Russia four times, but only to Moscow.

That’s great. Understanding the aspirations and sentiments of Russians, is half the battle. I’m an ex-patriot living in Peru. I am quite familiar with Peruvian culture, and spent years working with Mexican immigrants, but can only relate the culture of Brazil second hand. Nevertheless, I understand South America more than most, with regard to language and culture. Your knowledge of Russia is evident in your rhetoric, and for that I give you a thumbs up.